This week, we provide a brief overview of the history of the „KÁT” (mandatory purchase system) in Hungary. The aim of this article is not to provide a comprehensive overview, but rather to highlight the system’s continuous evolution, which is based on complex (economic, security of supply, and political) considerations, thereby underscoring the importance of constantly monitoring the regulatory environment and adapting to it.
The history of the mandatory purchase system can be divided into three main periods. In the early years, between 2003 and 2007, the so-called „KÁP” (Mandatory Purchase Fund) was introduced primarily in view of Hungary’s accession to the European Union. During this period, power plants—particularly those generating combined heat and power—were eligible for support on a technology-neutral basis; the energy produced had to be purchased by members of the wholesale market, which at the time had few participants (MVM, E.ON, DÉMÁSZ, EDF, etc.), while the resulting costs were distributed among end consumers.
The KÁT system, launched in 2008, provided a long-term guaranteed purchase price for builders of renewable power plants, aligning with the “Feed-in-tariff (FiT)” systems spreading across Europe. During this period, our 330 MW of wind power capacity received support, but the purchase price for solar power generation remained below the cost of production, while the energy policy of the time saw potential in supporting outdated coal and lignite power plants transitioning to biomass utilization.
The development of a system better adapted to market conditions and the actual costs of individual technologies (today’s “METÁR”) had been on the agenda since 2010, but after prolonged delays, this did not occur until 2017. Meanwhile, the price of solar panel systems began to fall rapidly, a trend not followed by changes in KÁT feed-in tariffs, so, whether intentionally or not, the delay in implementing METÁR left a loophole in the system: with 20–25-year guaranteed feed-in tariffs, ensured high returns and risk-free profits for companies that had obtained KÁT eligibility. Taking advantage of this, applications for 2,000 MW of solar power plants were submitted during the final period in December 2016, and trading of the issued rights began quickly; the rest is history...
However, the operators of KÁT-eligible solar power plants—which are gradually entering the market and now total 3 GW -have also faced challenges. The initially high scheduling tolerance bands allowed them to be completely exempt from paying the balancing energy fee even without involving any external service providers, even without using virtually any sophisticated production forecasting methodology. However, a regulatory amendment announced at the end of 2019 and effective in 2020 established tighter tolerance bands and mandated the calculation of balancing energy fees. The regulatory surcharge was initially allocated to power plant owners at a reduced rate, but the discount decreased year by year: it was 95% of the base values as of January 1, 2021, followed by 85%, 70%; 50%; and 25%, until finally a 0% reduction is applied since start of 2026.
We suspect that during business planning, the above changes and the scheduling service provider’s fee were not taken into account, or not fully considered. This may have also affected the financing agreements behind these projects; however, high profitability provided financial flexibility. A particular difficulty - and one that increases the risk for the scheduling service provider - is that the unit price of balancing energy under the KÁT system is not derived directly from market unit prices: the system direction compared to the entire KÁT group, as well as the direction and magnitude of schedule deviations for individual KÁT scheduling groups also play a role in determining the costs allocated to individual participants.
Effective March 1, 2022, an independent balancing management system was introduced, which enables trading between KÁT groups and other balancing responsible parties, compensating for the KÁT market’s 90-minute lead time (compared to 15 minutes in the free market). A more recent change is that, starting in 2025, the inflation-indexed pricing of the KÁT has been suspended for five years, reducing the growing burden on industrial consumers. Indirectly, KÁT power plants are also affected by legislative changes promoting colocation.
The issue of periods affected by negative day-ahead prices has been on the agenda for years and regularly comes up in technical consultations: from a legal perspective, modifying the current framework does raise questions; however, the operational situation where 3 GW of solar capacity “overproduces” into a grid already facing surplus electricity is likely unsustainable in the long term, and similar changes to support systems in this direction have recently taken place in several countries.
Please feel free to contact us regarding our KÁT scheduling service.